Venture Capital Trusts (VCT)

A business normally applies for finance under a venture capital trust (VCT) scheme by ‘pitching’ to would-be investors.

When pitching for finance under the VCT your business will need to demonstrate that it:

  • is well-prepared
  • presents a confidently pitch with the full details of the business
  • presents past and projected financial performance
  • provides details on target markets
  • highlights its goals and aspirations.

VCTs are serial investors who look at thousands of investments annually so your business needs to look attractive. Having the right team in place and understanding what is required to be a VCT investment is key to obtaining finance.

The investor needs to be convinced as to the viability of the business and its ability to provide them with an adequate return on their investment. 

The VCT fund manager will keep a close eye on all aspects of the business’s performance to ensure that its objectives are being met and that the return on investment is maximised. It is important to retain a good relationship with the fund manager, which will influence their willingness to provide further finance at a later date, if required. The fund manager will be keen to ensure that the company retains its qualifying status

There are a myriad of rules to comply with and if one or more are broken, then legislation provides for a complete withdrawal of tax reliefs. This could result in the investor being faced with an unexpected tax liability.

The legislation also provides for the amount of relief obtained, or otherwise available, to be reduced where during the relevant qualification period:

  • the subscriber disposes of his or her shares
  • the subscriber receives value from the company or a connected person
  • the company purchases any of its own shares from a member who has not had relief
  • the subscriber disposes of any share capital or securities of the company to a person connected with the company.